View this post on the web at [link removed]

“Waved on by a sea of Labour order papers and cheers, she got through with a performance that impressed her own party.” - Toby Helm
It’s over - and we can all breathe a sigh of relief. Or can we?
Rachel Reeves landed us this afternoon with some big figures: £26bn of additional tax rises creating £21.7bn of fiscal headroom, or spare money to ensure she can balance spending with revenue within five years - even if the unexpected happens.
It was a big error by Reeves to have allowed just £9.9bn of slack in the system last October. Low growth, sluggish productivity, and rising government costs all helped to wipe that out in no time. To refill the coffers today promises not to put up taxes had to be broken, and words eaten.
After a period of chaotic economic management this was the chance to put things right, perhaps the last chance for Reeves. Waved on by a sea of Labour order papers and cheers, she got through with a performance that impressed her own party.
But Budgets unravel as often as not. Politically and economically, will it be enough?
1) Has Reeves got her sums right this time?
In political terms as well as economic ones, the Chancellor cannot afford to get it wrong again. In October last year she gave herself just £9.9bn of headroom within which to work, effectively a reserve to dip into if the economy went off course or some external shock occurred.
Economists warned at the time that this was not enough. Paul Johnson, then director of the Institute for Fiscal Studies (IFS), reflecting on that decision in March this year, said: “If you are going to have iron clad fiscal rules then leaving yourself next to no headroom against them leaves you at the mercy of events.”
And so it proved. Low productivity, increased defence spending, rising welfare costs, stubborn inflation, all ate away at the reserve and left Reeves on the brink of breaching her “iron clad” rules.
So we have had months of resulting speculation about which taxes would have to rise - which promises would be broken - to put that right. The big question is: if £9.9bn was nowhere near enough, how can we be so confident that £21.7bn will be? Well, we can’t be that confident, says the Office for Budget Responsibility (OBR), which noted that the chance of keeping within that figure was 59% - hardly a racing certainty.
2) Will the markets buy it?
So far, so good. Or at least not so bad. The overall mood by mid-afternoon was described as subdued while traders and analysts digested the news. But there were no immediate danger signals.
Aqib Merchant, fiduciary manager at Russell Investments, said the market had anticipated tax rises. “The measures announced were largely expected, and the bigger market driver was the OBR’s weaker growth outlook,” he outlined. “Softer growth expectations may even give the Bank of England a little more room to bring [interest] rates down sooner, provided inflation remains contained.”
Merchant added: “Gilt yields initially moved when the OBR numbers came out early, but have since settled back. Ten and 20-year yields are now slightly lower as markets digest the full package.”
3) How did Labour MPs react?
When a party and a minister are in trouble, the whips circulate among backbenchers ahead of a key debate and place them on an effective three line whip. They are told to cheer in unison. Practices are held to get the timing right. So it clearly had been ahead of this Budget Day.
The noise behind Reeves was fearsome particularly when she announced the end of the hated two child benefit cap. They roared and threw their order papers skywards. Somehow, Reeves made it sound like she had never been involved in the decision to carry the cap over from the Tories and keep it for a year and a half; so much credit did she take for dropping it.
Lots of thought had gone into how to mitigate the effects on the poor and working people of another two-year extension to tax threshold freezes (which Reeves had promised not to do in her last Budget) by playing up extra help with fuel bills and rises in the minimum wage.
With the so-called “mansion tax” on people with properties valued at over £2m announced from 2028, the package went down well on the Labour side.
4) Is the welfare bill out of control?
In this Budget, Reeves seemed determined to cheer up the Labour benches by making it clear there would be no return to austerity. So the emphasis was on helping those most in need, not hurting them in their pockets. But lurking in the OBR’s report were some chilling facts about the spiralling welfare bill that underlined how this alone could play havoc with the public finances if it is not controlled.
The OBR found that the annual welfare bill was now £336m per year but was set to grow to over £400bn in the next five years. At some point Labour is going to tackle this. So too the OBR warned that the demands on the NHS were only set to grow at a pace that would be hard to meet financially. Afterwards both Kemi Badenoch, who called it a “Budget for Benefit Street” and Nigel Farage, pointed to soaring welfare bills as the key battleground of the coming months.
5) Can this government now get a firmer political grip and get back in the game?
It wasn’t the government’s - or Reeves’s - fault, but the fact that the OBR somehow managed to publish the main points of the Budget online minutes before Reeves appeared at the Despatch Box summed up the lack of grip at the centre that has characterised this administration in recent times.
For 18 months there has been an evident absence of strategy gluing individual announcements together. The communications have been appalling. No-one, as one very senior figure put it to me recently, is “connecting the wires and making the current run”.
Political pressure from Nigel Farage has seemed the main influence. Ministers cut the winter fuel allowance, then restored it. Cut welfare, then U-turned. Reeves prepared to raise income tax just a week ago, then decided not to go ahead - panicking the markets (albeit not for long). Why, if as Reeves said, the end of the two-child benefit cap had meant so much to her, had she not found the money to do it before?
There has been a lack of coherent strategy and clear direction for too long. This Budget at least has a clear purpose: to put things back on a sound footing for the next few years. So far it has gone down well in the Labour Party and it has not spooked the markets.
That is a start, but there is a long, long way to go.

Unsubscribe [link removed]?